Running your construction firm successfully depends on accurate accounting and bookkeeping that is handled properly. However, keeping your bookkeeping current and on schedule for each project takes time and expertise. Hiring a virtual assistant for your construction company is one approach to address this issue.
By outsourcing this crucial task to a BPP Virtual Construction Assistant, you will gain a skilled accounting personnel who can remotely manage every aspect of your bookkeeping, giving you more time to focus on growing your company and less time with figure crunching.
Fully understanding the importance of Cis deductions, Contract Revenue Recognition
(The other main accounting function in construction is called contract revenue recognition. This method refers to the way contractors and construction companies account for the revenue they’ve earned on the project. Contract revenue recognition is a form of accrual accounting used across the construction industry to determine how profitable a company is.
This type of revenue tracking differs from a cost-basis model, which considers revenue when it’s been paid and received. Since construction contracts can last several months or years, the contract revenue recognition method is more broadly used so contractors can determine at what point in the project they’ve started to make a profit.)
It's crucial to comprehend the fundamentals of construction accounting and how they differ from other general accounting principles because it's a specialised sort of bookkeeping. Construction accounting is different from accounting in other businesses because of the unique characteristics of the construction industry. Unlike many other businesses, construction companies typically work on a project-by-project basis, rather than providing ongoing services or producing products for sale. This means that the revenue and expenses for each project need to be tracked separately, and there may be significant fluctuations in revenue and expenses from one project to the next.
Some of the key differences between construction accounting and accounting in other businesses include:
Revenue recognition: In construction accounting, revenue is recognized based on the percentage of completion method. This means that revenue is recognized as work is completed on the project, rather than when the project is completed or when payment is received.
Cost accounting: In construction accounting, it is important to track costs by project, including both direct costs (such as labour and materials) and indirect costs (such as overheads and profits). This is necessary to accurately track project profitability and to ensure that each project is completed within budget.
Job costing: Construction accounting requires detailed job costing, which involves tracking the costs and revenue for each individual project. This is important to ensure that each project is profitable, and to identify areas where costs can be reduced or efficiencies can be improved.
WIP accounting: Work-in-progress (WIP) accounting is a critical component of construction accounting. WIP represents the value of work that has been completed on a project but has not yet been billed to the client. This is important to accurately track project profitability and to ensure that revenue is recognized in the appropriate period.
Retentions: In construction accounting, retentions are held by the client as security against any defects or issues that may arise after the project is completed. These retentions are typically released over a period of time, which can impact cash flow and revenue recognition.
Overall, construction accounting requires a unique set of skills and knowledge to accurately track the financial performance of each project. By understanding these differences, construction companies can effectively manage their finances and make informed business decisions.
Our specifically trained virtual accountant focuses only on construction industry financials and is a complete whizz with Xero, Quick books and other software.
So, get in contact today and find out how Bennett Partnerships can support your construction business needs.